Financial Update (January-March 2001)


Cover Story

Fannie Mae and Freddie Mac

2001 Outlook

Economic Review Article

New Birmingham Building

New Consumer Protections

Board Appointments

Financial Literacy Conference

Updated Brochure


Did You Know?

Data Bank

The Docket

Multiple Measures Give a Better Picture of Bank Market Concentration

In analyzing the competitive impact of bank consolidations, banking agencies and the U.S. Department of Justice tend to rely on the assumption that the market for bank services is local and is for services offered only by banks. This approach allows analysts to merge all products and services into a “cluster of services” for purposes of analyzing competition. But increases in the types and locations of competitors have cast doubts about whether a cluster of services exists.

An article in the Atlanta Fed’s Economic Review (Fourth Quarter 2000) examines how these changes have led the Justice Department to do separate analyses of small business lending when analyzing consolidations. Authors Lynn W. Woosley, an examiner in the policy and supervisory studies section of the Atlanta Fed; B. Frank King, a former vice president and associate director of the research department; and Michael S. Padhi, a senior economic analyst in the department’s financial section, compare measures of market concentration across deposit and small business loan products to answer two questions crucial for antitrust analysis: Are small business lending markets local, and are deposits an adequate proxy for small business loans?

The authors use new Community Reinvestment Act data for their analysis. This information provides a broader picture of out-of-market institutions’ participation in local small business lending markets and thus gives an indication of the degree of competitive pressure applied by these institutions. The findings show that the convenience of local offices can be overcome at least partly by distant lenders who offer, for example, better rates, greater access to credit, or more flexible products or hours of service.

The article concludes that, while additional research is needed, using multiple measures of market concentration is likely to give a truer picture of competition, especially in marginal cases.